China’s Sinopec cuts 2020 capital spending by 2.5%

Asia’s top refiner China Petroleum & Chemical Corp, or Sinopec, will trim capital expenditures in 2020 by 2.5% from a year earlier amid plunging oil prices and tepid fuel demand caused by the coronavirus outbreak.

Sinopec plans to spend 143.4 billion yuan ($20.21 billion) this year, with 61.1 billion yuan on upstream exploration focusing on an oilfield in northwestern China and construction at two shale-gas fields in the southwest.

The cuts will mainly come from Sinopec’s refining units, which will reduce spending by 9 billion yuan from 2019 to 22.4 billion yuan, and from the sales division, down by 7.6 billion yuan, according to a company statement filed to the Shanghai Stocks Exchange on Sunday.

“Due to the coronavirus outbreak, Sinopec is adjusting the 2020 production and operation plans in accordance to markettrends,” the statement said.

Sinopec has been boosting its capital spending in response to Chinese president Xi Jinping’s call to increase domestic oil and gas output.

However, companies are cutting budgets this year after the collapse in global crude oil prices and concerns over waning refined oil consumption.

Analysts indicate that breakeven costs for most of Sinopec’s production range between $50-$60 per barrel, much higher than the current price of benchmark Brent crude at $25.

“The company initially plans to maintain stable crude oil production and to increase output of natural gas,” said Sinopec.

The company produced 284.22 million barrels of crude oil in 2019, down 1.5% from 2018. Among which, 34.79 million barrels were churned out from overseas blocks, which is 12.1% lower from the previous years.

It also produced 1,048 billion cubic feet of natural gas in 2019, up 7.2% from 2018.

Sinopec on Sunday also reported a 8.7% fall in net profit last year due to shrinking refining margins amid industrial overcapacity and lukewarm fuel demand.

Net earnings for 2019 were 57.59 billion yuan, down from 63.089 billion yuan in 2018 but higher than 51.119 billion yuan in 2017.

Crude oil throughput at Sinopec last year rose 1.8% from 2018 to 248.5 million tonnes, with gasoline, diesel and kerosene output up 2.6%, 2.1% and 7.8%, respectively.

Sinopec said that it will speed up construction of cleaner marine fuel production and storage projects in 2020 to increase its market share. Source: Reuters (Reporting by Muyu Xu in Beijing and Chen Aizhu in Singapore; Editing by Christian Schmollinger)